Integrated Resource Planning: Past, Present, and Future · •PREPA shall seek to ensure that all...

Integrated Resource Planning: Past, Present, and Future

Michigan State University

Institute of Public Utilities, Grid School

www.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved.

March 29, 2017

Rachel Wilson

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Who we are

Synapse Energy Economics

• Research and consulting firm specializing in energy, economic, and

environmental topics

• Services include economic and technical analyses, regulatory support,

research and report writing, policy analysis and development,

representation in stakeholder committees, facilitation, trainings, and expert

witness services for public interest and government clients

• Synapse reviews and critiques electric utility plans in IRP and pre-approval

proceedings. We routinely use electricity production-cost and capacity

expansion models in these cases to investigate utility assumptions, analyses,

and preferred resource options. We also evaluate alternatives that may

provide greater benefits at less or equal cost to consumers.

Rachel Wilsonwww.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved.

3

Agenda

• What is IRP?

• IRP in practice

• Environmental regulations and risk

• Changing issues in IRP

• Flat load, declining demand due to EE/DG

• Environmental policies

• Existing generation value

• Competitive energy efficiency

• Renewable integration & distributed generation

• Case study: Puerto Rico

• Next generation of resource planning


What is IRP?

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What is IRP?

An IRP is a plan that seeks to find an optimal combination of resources to

satisfy future energy service demands in an economic and reliable manner

• Variously includes requirement to examine both demand-side and supply-

side resources on a “fair and consistent basis.”

• Subject to constraints such as reliability, regulatory, environmental and

operational requirements.

Meant to engage regulators and stakeholders in long-term planning

decisions

• Generally presented before regulatory commission, may be litigated

• Stakeholder process varies across states and utilities

• Seeks to make robust short-term decisions in light of long-term uncertainty

Rachel Wilson 5www.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved.

IRP vs CPCN vs Rate Case

Integrated Resource Plan (IRP)

• A long-term utility plan to meet forecasted annual peak and energy demand, along with

some established reserve margin, through a portfolio of supply-side and demand-side

resources.

• Regulatory proceedings to approve or acknowledge IRP, but not legally binding.

Certificate of Public Convenience and Necessity (CPCN)

• Proceeding before a state utility commission in which a utility provides justification for a

large capital investment in generation or transmission infrastructure.

• Legally binding and enforceable.

Rate Case

• Proceeding before a state utility commission in which a utility provides justification for a

requested increase in consumer electric rates to cover that utility’s cost of service.


A Short History of IRP

• 1970s: Rising fuel prices, increasing capital construction costs, and recognition of

environmental costs drive new understanding of least-cost planning

• 1980: Pacific Northwest Electric Power Planning and Conservation Act

• Addressed concerns about plateau in hydro construction and increasing demand

• Sought to ensure orderly power acquisition by Bonneville

• Early 1990s: States begin promulgating IRP rules

• Response to nuclear costs and massive stranded investments from cancelled projects

• Tools for least-cost long-term planning emerge to examine tradeoffs between

capital investments vs. fuel and variable costs

• Primarily examine requirement for new resources to meet demand, do not revisit existing resources

• Late 1990s: Electricity restructuring wipes out long-term resource planning in

competitive access states

• Late 2000s: States begin re-visiting “procurement” planning


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States with IRP Requirements (2015)

Rachel Wilson

Source: US EPA. 2015. Energy and Environment Guide to Action, Chapter 7.1

CA moving to implement IRP

PR requires IRP as of 2015

TVA produces IRP (no req.)


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IRP Varies from State to State

Integrated resource planning processes will vary from state to state with respect to:

• Regulatory requirements

• Analysis period

• Frequency of updates

• Resources considered

• Inclusion of externalities

• Risk analysis

• Degree of rigor

• Stakeholder feedback process

• Degree to which they are subject to regulatory scrutiny


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Policies Used by States to Integrate EE, RE, and CHP into IRP

www.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved. Rachel Wilson

Policy Description State Examples

Require third-party energy efficiency potential studies

Require, or have required, utilities to commission energy efficiency potential studies as part of planning process, or perform a statewide study for use in planning.

AR, CA, IA, IN, MA, OR, WI

Mandate all cost-effective energy efficiency in planning

Require that utilities plan for all achievable cost-effective energy efficiency, or demonstrate that all supply-side and demand-side resources have been evaluated on a consistent and comparable basis.

CA, IN, MA, OR, Northwest

Update assumptions for renewable energy capacity value, and supply and integration costs

Require or explicitly note that renewable energy costs and attributes change over time and should be kept up to date.

AZ

Quantify reasonably expected environmental regulations

Have policies requiring cost consideration for future environmental regulations.

IN, OR, WY

Tie investment decisions to planning processes and follow up on action plans

Require that integrated resource planning result in an action plan with resource activities the utility intends to undertake over the next 2 to 4 years. Test investment decisions against integrated resource planning results.

IN, OR

Leverage existing knowledge from state utility and environmental regulators.

Have mechanisms for coordinating environmental permitting and utility electric planning.

CA, CT

Promote meaningful stakeholder involvement.

Provide funding opportunities for public interest stakeholders and intervenors in planning cases.

IN, ME, NY, OR, WI

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Oregon

• IRP rules mandate that the public participate in the planning process at its earliest stages

• PUC emphasizes the evaluation of energy conservation in a manner that is consistent and comparable to that of supply-side resources

• The definition of “least-cost” includes economic, environmental, and social uncertainties

• At a minimum, the following sources of risk and uncertainty must be considered: load, hydroelectric generation, plant forced outages, fuel prices, electricity prices, and costs to comply with GHG regulation


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Colorado

• Utilities may choose their own planning and resource acquisition periods

• PUC must give the fullest possible consideration to the cost-effective implementation of clean energy and energy-efficient technologies

• Resource plans must include the water intensity of resources and the generating system as a whole

• PUC must consider the likelihood of new environmental regulations and future costs when considering utility plans

• Three alternate resource plans that meet the same resource needs but include proportionally more renewable energy or demand-side resources


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Puerto Rico

• IRP rules went into effect in 2015; PREPA submitted its first IRP

• PREPA must present a description of the planning and regulatory factors that affect the environment in which it operates, and the way in which these factors impact PREPA’s system

• PREPA shall identify new DG and DSM resources and programs

• PREPA shall seek to ensure that all potentially cost-effective measures are considered comprehensively

• PREPA shall propose bundles of demand-side resources at varying levels of cost and effectiveness

• PREPA shall prepare estimates of the cost of sufficient bundles of demand-side resources such that they utility could achieve 2 percent incremental EE savings per year, for at least 10 years

• Must use a capacity expansion model


IRP in Practice

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Resource Planning Approach

A successful integrated resource planning approach includes:

• Meaningful participation from a diverse group of stakeholders, which

includes, but is not limited to, the utility, state regulatory bodies, consumer

advocates, and environmental advocates

• Development and screening of key input variables: forecasts of load,

commodity prices, and market energy prices; costs and benefits of existing

and future supply- and demand-side resources; and changes to the

regulatory environment

• Use of an industry standard electric system model to develop resource plans

to meet future requirements under probable future scenarios, and test their

sensitivity to risk factors

• Selection of a preferred plan, and development of a short-term action plan


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Participants

• Utilities

• Regional transmission organizations (RTOs)

• State Public Utility Commissions

• State environmental regulators

• State legislatures, governors, and energy offices

• Stakeholders and intervenors


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Flow Chart for Integrated Resource Planning


Need for New Resources

Uncertainty Analysis

Public Review/PUC Approval

Monitor Action PlansAcquire Resources

Define Suitable Resource MixesSocial

Environmental Factors

Load Forecast

Existing ResourcesIdentify Goals

Supply RatesT & DDemand

Source: Hirst, E. (1992). A Good Integrated Resource Plan: Guidelines for Electric Utilities and Regulators. Oak Ridge National Laboratory.

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Characterizing the Electric System

• Generator longevity

• Utilization rates relative to nameplate capacity

• Ramping abilities

• Emission rates and installed environmental controls

• Variable operating costs

• Purchase Power Agreements

• Transmission constraints

• Effectiveness of existing energy efficiency programs

• Current levels of distributed generation


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Model Input Assumptions

1. Sales and peak load

2. Fuel prices

3. Capital costs of generation, transmission, and distribution equipment

4. Technology performance characteristics

5. Renewable energy potential

6. Energy efficiency potential and program cost

7. Avoided cost of generation

8. Resource availability and constraints

9. Transmission upgrades or constraints

10. Lead times for permitting and construction

11. Future regulations

12. Resource adequacy and reliability


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Electric Sector Models

•Screening tools

• Levelized cost tools

• EPA’s Avoided Emissions and geneRation Tool (AVERT) –estimates the emissions implications of energy efficiency measures and new renewable capacity

• Synapse’s Clean Power Plan Planning Tool (CP3T) – a spreadsheet tool that examines statewide compliance strategies with the Clean Power Plan

•Advanced Energy Economy State Tool for Electricity Emissions Reduction (STEER) – an integrated resource planning model that calculates least-cost strategies for Clean Power Plan compliance


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Production cost models• MIDAS, PROMOD, Market Analytics (PROSYM), GE-Maps

These models:• Simulate hourly and sub-hourly system operation and

dispatch, assessing reliability, resource adequacy, and transmission constraints

• Analyze the impacts of system changes on system operations• Provide detailed emissions outputs

These models don’t:• Build new capacity• Model the entire United States simultaneously, but instead

by RTO or interconnect


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CAISO: Ramping process of March 24, 2024 – 40% RPS scenario

www.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved. Rachel WilsonSource: Liu, Shucheng. (2015). The CAISO Study of 2014 LTPP No Renewable Curtailment Sensitivity Cases. Prepared for the LTPP Study Advisory Team Conference Call.

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Capacity expansion models• Regional: NEMS, IPM, ReEDS

•Utility: EGEAS, Strategist, System Optimizer

These models:•Determine the optimal generation mix over time that

will meet peak and annual energy requirements at the lowest cost, subject to any regulatory constraints.

These models don’t:•Have chronological unit commitment, but instead rely

on a simplified dispatch methodology


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Generation in RFC Michigan Region


Source: AEO 2015, Reference Case

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Models with both capacity expansion and production cost capabilities

•AuroraXMP

• PLEXOS

• EnCompass


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Production Cost or Capacity Expansion?

• What is the least cost dispatch of ISO-NE to meet hourly load?

• What are the impacts of the MATS rule on capacity and energy generation?

• How do falling natural gas prices affect investments in generating capacity?

• What are the emissions impacts of coal retirements in a utility system?

• What are three different pathways to greenhouse gas compliance and how much will they cost?

• What are the efficiency and distributional effects of an increased Renewable Portfolio Standard?

• What are the avoided costs associated with energy efficiency programs?

• Can we quantify the maximum potential for redispatch from coal to natural gas in a region?


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PacifiCorp Modeling and Risk Analysis Process – 2011 IRP


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Risk Analysis

•At a minimum, important and uncertain assumptions should be tested with high and low cases to assess the sensitivity of results to changes in input values• Load forecasts• Fuel prices• Emissions allowance prices• Environmental regulatory regimes•Costs and availability of DSM measures•Capital and operating costs for new units•Actions for existing units

•Many cases may warrant more sophisticated techniques


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Choosing a Plan

•PVRR is the most common metric•May be useful to evaluate plans along other dimensions•Environment cost or impact

•Fuel diversity

• Impact on reliability

•Rate or bill increases

•Meeting other state energy policy goals

•Flexibility

•Minimization of risk


Environmental Regulations and Risk

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Impacts of Regulations in Planning

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New Unit Selection • Restrictions on unit types (e.g., NSPS for CO2 bars new coal)• Availability of permits (ozone, water)• Preferred selection towards low-impact resources

Existing Units • Capital expenditures• Fixed operations and maintenance (O&M)• Variable O&M• Heat rate• Capacity• Operational limits• Fuel sources

System • Dispatch cost & loading order• Wholesale energy prices• Overall system cost


General Principles

1. A key purpose of system planning is to determine near-term actions.• Acquisitions, builds, sales, contracts, funding levels

2. In least-cost planning, existing units compete with new units and EE/RE

programs.

3. Existing and new units may be subject to existing, proposed, and expected

environmental regulations.• Existing regulations are (likely) the rule of law

• Existing, proposed, and expected environmental regulations impose costs and restrictions

4. The purpose of examining proposed and expected regulations is to examine if

different choices would be made in the near term in light of future risks—

including retirement, new builds, EE/RE investments, etc.

5. The economic viability of existing units should be tested rigorously in the face

of environmental regulations.

Rachel Wilson 32

…therefore…


Assigning Costs & Impacts

• Engineering costs and estimates

• Known allowance costs for tradable emissions

• Permit conditions for restrictions

Existing Regulations

• Proxy costs for capital

• Proxy allowance cost

• Proxy restrictions or caps

• Lenient and strict interpretations of final rule

Proposed Regulations

• Estimated impact: general proxy cost

• Best guess on timing and magnitude

Pending Regulations


Assessing Probability of Impact

• Requires subjective probability of regulation

• Is there significant momentum behind the regulation?

• Is there a court order or consent decree requiring the regulation?

• What is the current estimated date of finalization/implementation?

• Will the rule really be held up in court?

• Probability and impact are separate items, and should not be confounded or combined in assumptions.

• i.e., a modeled CO2 price should not be the allowance cost times the probability of occurrence, it should simply be the allowance cost. Probability comes later.


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Assessing Probability of Impact

A “reference” case is the expected, or mean, outcome.

Assuming that there is no impact of a regulation in the reference case

implies:

(a) There is absolute certainty that the regulation will not come to fruition;

(b) There is an equal probability that the regulation will be beneficial as

harmful.


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Option Value

• Given significant uncertainty on future environmental regulations, how do we

make resource decisions today?

Hypothetical Scenario:

• Need to decide this year if we install an expensive flue gas desulfurization

(FGD) by 2018 for SO2 NAAQS compliance.

• New ozone standard implies potential need to install selective catalytic

reduction (SCR) in 2022.

• Installing both an FGD and SCR is non-economic.

• Once I install the FGD, the cost is sunk.

• Avoid a piecemeal solution.

What should we do? Option value.


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Option Value

Rachel Wilson

2018 2022

Decision

Uncertainty

A (install FGD and SCR)

B (install FGD,then retire)

C (install FGD,no ozone reg.)

Replacement PortfolioD (retire today)

End of Analysis Period

Install FGD?

Install SCR?

= PVRR(A) * p(Ozone) + PVRR(C) * (1-p(Ozone))

= PVRR(D)

vs.


= PVRR(D)

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Option Value

Rachel Wilson

Install FGD

RetireInstall FGD

today?

= PVRR(A) * p(Ozone) + PVRR(C) * (1-p(Ozone))

Install the FGD for today’s regulation if the cost of the retiring and replacing the energy exceeds the cost of maintaining the unit.

Maintaining the unit accepts the risk that the ozone standard will require the installation of SCR.

Install FGD today if:PVRR(A) * p(Ozone)+ PVRR(C) * p(Ozone)<<PVRR(D)

A (install FGD and SCR)

C (install FGD,no ozone reg.)

D (retire today)


Changing Issues in IRP

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Flat and Declining Load

• Traditionally, IRP addressed one key

question:

What is the optimal set of additional resources to meet increasing demand?

• IRP tools were designed to determine

optimal capacity expansion

• But, recent years have seen flat or declining

load in many regions

• Impact of DG, EE, and changing economic conditions

• IRP must now evaluate cost-effectiveness

of existing resources

• Planning must determine what units should

be removed (retired) or modified (retrofit)

in addition to considering unit additions

Rachel Wilson

Source: US EIA, historical sales to 2015. AEO 2016 ER to 2040. Please note log scale.

US Electricity Consumption1950-2040


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Environmental Policies

Rachel Wilson

Pre-2010: Sector-wide blind spot

• Little practice in examining value of existing units

• NERC study (and contentious regulatory cases) catalyzed industry

2010-2014: Serious uncertainty

• IRPs variously included / neglected impending regulations and asset valuation

• Seeking clarity on probability, timing, cost, and risk

2014-2016: Standardization of practice

• Recognition of capital / operational impact of regulations & price changes

• Most high impact regulations settled except CO2


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Existing Generation Value

Short-term (operational) challenges

• Solid-fuel units dispatching less today• Falling gas and electricity prices• Emissions control costs• Emissions prices• Increasing fuel costs

• Utilities historically gave little attention to short-term variable costs of “baseload” units in IRPs - no longer.• MISO CPP study (May 2016) finds coal units de-commit due to high variable price

Less competitive over long-term (planning)

• 2010 - 2014: utilities (slowly) start testing economic viability of individual units that require capital investments

• 2014 - now: long-term revenue deficit for high fixed cost units (nuclear, coal) make these units less economically viable

Long-term fuel forecast is critical: will energy prices increase enough?Rachel Wilson

A plan cannot be least cost without having evaluated the cost-effectiveness of existing supply-side resources


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Competitive Energy Efficiency

EE as Load Reduction Supply-Side EE

• Traditional mechanism • Emerging mechanism

• Assumes that set amount of EE happens regardless of economics

• EE can compete with new and existing resources as with any other supply-side resource

• Simple implementation• Reduce load with EE profile• Assign cost per kWh

• Complicated implementation• Model individual programs?• What is the cost of a future program?• Can today’s savings levels persist @

cost?

• Difficult to evaluate EE as a dynamic element of emissions compliance or portfolio buildout

• Readily adapted to changing economic conditions

• Requires multiple runs with various EE levels to determine system benefit

• Single model run could (theoretically) estimate correct EE level


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Renewable Integration & Distributed Generation

Renewable energy in resource planning

• Historically, renewable energy played minor role in overall generation mix for most utilities = simplified representation

• Dropping costs + renewable policies = important to capture operational impacts, capacity contribution, and integration costs

• Simplified representations may be inadequate

• Emerging technology and mechanisms to model renewable energy and storage

Distributed generation

• Behind-the-meter generation previously regarded as small reduction to load (no longer)

• Difficulties:• Cost of resource plan may influence expected DG buildout

• Distribution-level analysis may be required to determine local area needs and balancing

Rachel Wilsonr

Source: Google Project Sunroof


Case Study: Puerto Rico

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Background

• No historic oversight for PREPA

• Puerto Rico bankrupt

• Act 57 (2014) created the Puerto Rico Energy Commission

• Finalized first IRP in late 2016

• PREPA has issues…

• Big budget gap

• Institutional corruption

• Loss of staff over last five years

• Big spending requests for MATS compliance

• Basic lagged maintenance


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Overview of PREPA’s System

Rachel Wilson

EcoElectrica(3rd party gen. & LNG port)

Load is up here!

(FO/NG mix)

(FO)

(Diesel & FO)

(FO)

Planned site of AOGP


48

Analysis: PPAs

• Owned resources

• Small hydro

• Mix of oil and diesel units

• Two thermal PPAs

• EcoElectrica: NGCC

• AES: Coal steam

• Many renewable PPAs

• 2 wind

• 1 landfill gas

• 10+ PV (not all are online)

• RE prices of ~$160-$200/MWh


49

IRP Issues

• PREPA load isn’t just flat – it’s declining

• PREPA has to replace 80% of its fleet because it is not

MATS compliant

•Not currently in compliance with the RPS

•Unclear whether PREPA’s proposed solution (a $500 million

new natural gas terminal plus unit fuel conversions) is

actually the most economic choice

• Failing infrastructure is the lynchpin of PREPA’s operations


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IRP Rules Didn’t Work – Why?

•Poor communication

•Action plan was decided on prior to doing the analysis

•Stakeholder engagement was focused on issues that

were not relevant to the proceeding

• IRP rules asked for information that PREPA did not

have and could not obtain easily


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IRP Rules Under Revision in Puerto Rico

Crafting IRP rules to reflect better planning questions

•How can PREPA integrate more renewables?

•How can PREPA meet MATS requirements?

• Puerto Rico PUC, US EPA, US DOE, FERC, PREPA

•How can PREPA upgrade its transmission?

Not everything requires capital investments!


Next Generation of Resource Planning

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Recent developments in planning models

Long term planning with hourly dispatch

• Simply meeting seasonal peak demands is not enough

• Operation details matter – ramping, starts and startup times

• Computational power can still be limiting

Cloud based platforms

• Scalable computing capacity without persistent investment

• Reliability!

Gas supply integration

• Limits on peak day pipeline capacity are important – different than peak

power day


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Emerging planning issues present modeling challenges

How does distribution planning overlap with long term system planning?

• Rooftop PV can stress circuit level infrastructure, but provides broad system benefits (see California and New York)

Storage operation is tricky to model, particularly in long term models

• Key value can be peak hour operation, or intermediate ramping needs. Or ancillary services.

Inclusive stakeholder processes remain important

• Continued need for detailed publicly available datasets

• Must provide value and avoid protracted processes where data becomes stale


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State energy planning to complement utility planning

States are increasingly influencing energy planning via policy – this should be

done in an economic framework similar to IRP

• Historically energy efficiency and renewable portfolio standards

• Long term contract requirements (see Massachusetts)

• Nuclear incentives (New York, Illinois)

• Distributed generation incentives (and how they factor into system load forecasts)

• Clean Power Plan Planning

Examples include:

• New Jersey Energy Master Plan

• Connecticut IRP

• California Long Term Procurement Planning


Contact information

www.synapse-energy.com | ©2017 Synapse Energy Economics Inc. All rights reserved. 56

Rachel Wilson

[email protected]

Rachel Wilson

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